The first of three presidential debates is scheduled for Wednesday. We don't know precisely what topics the candidates will cover, but we can make some educated guesses. And one reader from Duluth, Minnesota, wrote in to ask us about a likely topic: the much-debated 2009 stimulus, which greatly increased federal spending for several years. The stimulus package – officially called the American Recovery and Reinvestment Act (ARRA) – was passed under President Obama's leadership. The president and his team were famously over-optimistic about how quickly the economy would recover, and that has made stimulus spending an easy target for his political opponents, with critics saying that hundreds of billions of tax dollars were wasted.
The economy turned out to be much weaker than the Obama team predicted, but that's a separate issue from whether or not the stimulus helped ease the devastating effects of the downturn. Here's the low-down.
To date, more than $800 billion have been spent under the ARRA. That's an enormous amount of money. Around $300 billion of that came in the form of tax cuts and tax credits for individuals, families, and businesses – the Earned Income Tax Credit, the Making Work Pay tax credit, and the Work Opportunity Tax Credit for businesses hiring veterans, among others. Then around $250 billion paid for a variety of programs in education, infrastructure, and renewable energy, plus many other sectors. Finally, another $250 billion or so has funded expanded safety-net assistance for low-income and unemployed Americans, including cash benefits, health care, food stamps, and housing assistance.
Economists overwhelming agree that all of this government spending kept the unemployment rate lower than it otherwise would have been, according to a survey of distinguished economists conducted by the University of Chicago Booth School of Business.
But you don't need a degree in economics to understand why all this spending slowed the rate of layoffs. As one example, consider the stimulus money spent on education.
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The federal government actually sent cash to the states in order to prevent massive layoffs of teachers; the states were facing deep budget problems, and they were laying off all types of state employees to close deficits. Federal money allowed many teachers to keep their jobs. That scenario was repeated over and over – for firefighters, social workers, construction workers, and others – in cities and towns across the country. That's why there's little question about whether or not all that stimulus money eased unemployment, because it directly funded many jobs that otherwise would have been cut. Late in 2009, more than 608,000 people were employed as a direct result of federal grants and contracts, according to the government website Recovery.gov. Many others were employed indirectly as a result of federal spending.
It's certainly reasonable to question whether or not that stimulus money could have been spent more effectively, and what the ideal role of the federal government should be during weak economic times. But there's not much doubt about whether or not the stimulus allowed many people to hold their jobs and pay their bills during the downturn.